What Is Debt Consolidation?
Debt consolidation is when you take out a new loan to pay off other, smaller debts that you already have. In effect, multiple loans are merged into a single, larger and more manageable debt.
When taking out a debt consolidation loan, you use that money to pay off your outstanding debts in full, and then you focus on paying back this new loan over an agreed time period. Debt consolidation loans usually offer more favourable payment terms compared to other loans, including lower interest rates and lower monthly payments.
Consolidating your debts does not make them disappear — it just makes life easier and can help to save you money in the long run.
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What Types Of Debt Consolidation Loans Are Available?
There are two types of debt consolidation loans: secured and unsecured.
- A secured debt consolidation loan is one that uses an asset that you own (usually your house) as collateral. Lenders view secured loans as lower risk, so you can borrow a large amount of money (over £25,000) and get lower interest rates. However, if you fail to keep up with the monthly repayments, you risk losing your home.
- An unsecured debt consolidation loan is one that isn’t secured against an asset. As a result, lenders view these as higher risk, so the interest rates may be higher. With an unsecured loan, you can usually borrow between £1,000 and £25,000.When Might You Need A Debt Consolidation Loan?
Depending on your financial situation, consolidating your debts might be the best course of action. Generally speaking, it’s a helpful solution if you’re drowning in debt and overwhelmed by monthly loan repayments.
Consolidating your debts can be useful if:
- You have several high-interest loans and want to reduce your overall interest payment.
- You’re dealing with short-term financial issues and need to lower your monthly payments.
- You’re struggling to manage multiple loans and debts.
- You’re unable to negotiate lower interest rates on your existing loans.
However, it’s worth keeping in mind that your income and credit score will affect whether or not you get approved for a debt consolidation loan, as well as the interest rates you’ll be offered if you are approved for one.
What Are The Benefits Of A Debt Consolidation Loan?
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Debt consolidation loans offer many advantages, depending on your financial situation. They don’t make your debts magically disappear, but they can help to ease your burden, save you money and make life easier. The benefits of a debt consolidation loan include:
- Lower interest rates — Debt consolidation loans usually offer lower interest rates compared to the loans you’ve accumulated, which in turn reduces your monthly interest payments. Depending on the length of your debt consolidation loan, you could end up paying less interest overall and therefore saving more money in the long run.
- Makes life easier — Simply put, consolidating your debts simplifies things. Instead of having to keep up with multiple monthly payments with different interest rates going to different lenders, a debt consolidation loan means you can focus on making a single payment to the same lender each month. This also makes budgeting easier.
- Improves your credit score — Consolidating your debts can help to improve your credit rating over the long term. This is because having one loan to worry about (instead of multiple loans) reduces the chance of you missing a repayment. Plus, when you consolidate debt, you work towards reducing your credit utilization rate — the amount of credit you’re using compared to how much credit that’s available to you — which is one of the most important factors in calculating your credit score.
- Overpaying — Once you have more disposable income, overpaying on your monthly repayments can actually save you money in the long run. We’ll demonstrate some overpayment graphs to you so that we can show you how you can lower the amount of overall interest you pay and reduce the term of your mortgage.
How We Can Help If You’re Looking For A Debt Consolidation Loan
Consolidating your debts is an important decision that requires careful thought, research and number crunching. Getting expert advice is key to making an informed and financially sound decision. This is where Huxley Mortgage Services can help you. We’re mortgage advisors in Chester with a team of friendly, professional and experienced financial experts. We’ll discuss your financial situation in detail and figure out the best debt consolidation solution based on your individual situation. We pride ourselves on providing an excellent service and keeping our clients updated regularly throughout the process.
If you are looking for a debt consolidation loan in Chester, get in touch with Huxley Mortgage Services today.
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